When the company is in total control it makes better plans
Share buy-back is one of the methods being adopted by local companies in the quest to raise capital for re-establishing their businesses.
Economic analysts who spoke to the Sunday Times said when shareholders gain total control, they become better placed to make investment decisions and this increases their level of determination in running the company.
“When a company is in total control of its shares the shareholders are better placed to make investment decisions, they do not have to have the approval of minor shareholders and are better placed to restructure the company,” said analyst John Robertson.
Robertson said at the moment the value of shares in the market was low, hence companies were snapping them up.
“The value of shares in the market is low hence companies are paying little money to buy back shares and firms embark on share buy-backs to boost their share prices so that when they embark on rights offers, they will be at a good price and will also achieve a low cost of equity,” he said.
Another analyst said companies do sometimes retain bought-back shares as treasury shares in order to be able to resell them, or allocate them to fulfil share options and in the process increase the value of the company.
“Shares are kept as treasury shares and the company can choose to resell them, and this increases its share capital and the value of the company,” said Samukeliso Tshuma.
The analyst said that some companies were buying back shares to avoid the risk of being taken over by foreign investors who are in the market, thus reducing the number of shares in the market and in the process gaining total control.
“By buying back shares companies will be reducing the risk of being taken over by foreigners. They ensure that there are less shares in the market and in the process gain total control of the business,” Tshuma said.
However, analysts added that share buy-backs do not assist company growth, they actually hinder future growth as they use funds meant for growth to buy the shares.
The ZSE listing requirements allow a company to purchase up to 20% of its issued share capital in one financial year. The Companies Act stipulates that a company’s acquisition of ordinary shares in the aggregate year may not exceed 10% of its issued share capital from the day of grant of this authority.
Natfoods intends acquiring about 3% of the ordinary shares in issue, while Murray Roberts is considering purchasing 20 million shares at a price not lower than the nominal value of $0.01 per share. Directors of Innscor Africa Limited and Radar Holdings Limited recently said they intended to embark on a share buy-back programme subject to shareholder approval.